Five Star Tools Case Analysis

EXECUTIVE SUMMARY

Five Star Tools is a small family owned firm that manufactures diamond coated cutting tools used by jewelers. In the past two years, the company has experienced growth and is at capacity in the coating and sharpening process. This has created a constraint, or bottleneck, that has caused the company to miss deadlines on orders for customers. This case analysis seeks to provide solutions to the constraint problem.

ANALYSIS

The president of the company, Maxfield Turner, and Betty Spence, VP of Marketing are seeking solutions to the constraints. There are several steps that can be taken to loosen the constraint in coating and sharpening. Using Goldratt’s Theory of Constraints, the first step has been accomplished. Five Star Tools has identified the constraint as the coating and sharpening department (which requires highly skilled workers and expensive equipment).

The next step in the constraint theory is optimizing use of the constraint. This would require identifying which products to produce with the “highest contribution per unit of the constraint” (Jiambalvo, 2010).

According to the table below, Five Star Tools should produce Model C210 since it has a higher contribution margin per unit. This would also give the benefit of $1,250 since more production time in coating and sharpening would be spent on Model C210.

The next step of the theory that can be used to solve this problem is to subordinate everything else to the constraint. This can be done by adding an inspection station before the coating and sharpening process. The incremental profit per year associated with adding a new inspection station would be $204,000 (240 hours saved x $850).

Breaking the constraint is the next step in the theory of constraints that can help Five Star Tools.

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